JetBlue Airways Corp (JBLU) 2017 Q4 法說會逐字稿

Good morning.

My name is Stephanie.

I would like to welcome everyone to the JetBlue Airways Fourth Quarter 2017 Earnings Conference Call.

As a reminder, today's call is being recorded.

(Operator Instructions)

I would now like to turn the call over to JetBlue's Director of Investor Relations, David Fintzen.

Please go ahead.

Thanks, Stephanie.

Good morning, everyone, and thanks for joining us for our fourth quarter 2017 earnings call.

This morning, we issued our earnings release, our investor update and a presentation that we'll reference during this call.

All of those documents are available on our website at investor.jetblue.com, and have been filed with the SEC.

Joining me here in New York to discuss our results are Robin Hayes, our President and CEO; Marty St.

George, EVP, Commercial and Planning; and Steve Priest, our EVP and Chief Financial Officer.

This morning's call includes forward-looking statements about future events.

Actual results may differ materially from those expressed in the forward-looking statements due to many factors and, therefore, investors should not place undue reliance on these statements.

For additional information concerning factors that could cause results to differ from the forward-looking statements, please refer to our press release, 10-Q and other reports filed with the SEC.

Also, during the course of our call, we may discuss several non-GAAP financial measures.

For a reconciliation of these non-GAAP measures to GAAP measures, please refer to the tables at the end of our earnings release, a copy of which is available on our website.

And now, I'd like to turn the call over to Robin Hayes, JetBlue's President and CEO.

Good morning, everyone.

I know it's a busy day for you, so thank you for joining us.

I'd like to start by thanking our crew members for their hard work over the past year.

We are proud of how our 21,000 crew members rose to each and every challenge, particularly in a historic hurricane season and during the extreme conditions in the Northeast in early January.

We are very pleased with the 100% completion factor achieved during the recent holiday peak, another example of the hard work of our teams.

Your commitment to JetBlue allowed us to deliver strong fourth quarter and full year results, and we look forward to continuing to live our values in 2018.

Turning now to Slide 4 of our presentation.

This morning, we reported fourth quarter operating income of $189 million, a pretax margin of 9.7%, and earnings of $2.08 per share.

Our results include a $570 million one-time noncash gain related to tax reform, which equates to $1.76 per share, and also includes the one-time $1,000 bonus paid to our crew members.

In 2017, we made significant progress in our journey to superior relative margins.

On the revenue side, we further developed our network, grew our co-brand credit card, and once again, exceeded our expectations and refined our Fare Options platform with great success.

As a result of our efforts, we saw significant top line growth during the last 3 quarters of 2017.

We're now hard at work developing our next set of revenue initiatives.

I've been extremely pleased with our progress in structural cost and our fleet review.

Our cost reduction efforts are critical to achieving our margin commitments.

The financial success of our model is most visible in the results from our largest and most mature Northeast-focused cities.

This year, we plan to make further investments in our schedule, tools and processes to strengthen our operation and protect our margins, given our presence in cities with some of the most congested and complex air space in the United States.

Our on-time performance initiative, which began in 2016, is showing results, especially in what we call blue sky days.

These changes will allow us to better recover when weather and ATC challenges severely impact our operation.

We are delighted that even with the added operational investments we made during 2017, we are on track to achieve our cost goals.

Turning to the Caribbean.

Travel is recovering in Puerto Rico more quickly than initially expected, and we've been able to shift some capacity back to San Juan for the first half of 2018.

Recovery is by no means complete.

Within the fourth quarter, close-in demand for our VFR, or visiting friends and families -- visiting friends and relatives, customers was encouraging.

Our redeployed capacity in the region performed extremely well in the fourth quarter and is a point of strength in our network.

We will continue to partner with the community and support our local crew members through our 100x35 initiative in Puerto Rico.

Now let's move to Slide 5. Our success as an airline has been driven by our strong brand and relevance in our focus cities, and we continue to refine our model.

We have continued to add key destinations and frequencies for growing -- for our growing corporate customer base.

Our value proposition is further underscored by Mint, our premium offering.

For our leisure customers, we are enhancing and expanding our proposition by investing in areas such as our vacations business.

Our Boston franchise continued to produce superior margins in 2017, and our growth has expanded and solidified our position there as the #1 airline.

We continue to invest in South Florida, where our model is showing evidence that it can and will produce the superior margins that we already enjoy in our more mature focus cities.

And of course, Mint continues to exceed our expectations as the RASM and margin build up.

In 2018, we expect to see exciting and important commercial initiatives take flight.

One of them is our JetBlue Travel products business, which includes nonair ancillary and travel products and our vacations business.

We believe there is a tremendous potential for the JetBlue brand and particularly in extending our reach further into the travel ribbon.

We've begun to see tangible benefits from our structural cost program.

Our work in technical operations is starting to have a positive impact, and we estimate unit maintenance cost would decrease in the back half of the year.

We are also making nice progress in our corporate and airports pillars, with a focus on customer and crew member tools that will boost productivity and reduce our cost.

We believe we are nearing an important inflection point in our CASM Ex-Fuel trends as we work forward -- as we work towards our CASM Ex-Fuel CAGR goal of 0 to 1%.

Together with our structural cost program, we have a number of work streams underway to drive a digital transformation over the next few years.

We've been rolling out a suite of customer self-service tools, which integrate technology in all aspects of travel, and improve the customer experience as we work to reduce our cost.

Last but not least, we are pleased that U.S. tax reform was enacted in December, and believe the new law will have a positive impact for our company.

We anticipate a lower tax rate will provide us with the opportunity to do good things for our crew members, customers and owners.

We announced our $1,000 for crew member bonus in January, and continue to evaluate additional actions to benefit all stakeholders and the communities we serve.

We will, of course, weigh all of our options in the context of our committed financial goals, which are nearly all pretax target.

As we look into 2018 and beyond, we are moving on multiple fronts to strengthen the foundation for superior margin for JetBlue.

We've come a long way since 2014.

We believe we are taking the steps that will allow us to create long-term shareholder value in the years to come.

Marty, over to you.

Thank you, Robin.

I'll start with our capacity guidance on Slide 7.

We expect to continue with our targeted growth set to support our margin commitments, and we anticipate growth in the mid- to high single digits over the next few years.

For modeling perspective, we expect 2018 flown ASM growth of between 6.5% and 8.5%.

This year, we will lap the lower completion factor of 2017.

Given the higher oil prices, we plan our 2018 schedule-to-schedule ASM growth to be between 6% and 6.5%.

This will be the third year in a row of sequentially lower scheduled growth.

Of course, we will continue to watch the energy markets adjusting our capacity accordingly to meet our margin commitments.

For the first quarter, we expect capacity growth between 3.5% and 5.5%.

Our growth continues to be focused.

In Boston and Fort Lauderdale, we have planned scheduled growth of 13% and 6%, respectively, during the first quarter.

These 2 focus cities are expected to represent nearly 3/4 of the total incremental capacity for the first quarter.

During the first quarter, new markets or those less than 1 year old are just 2% of seat miles.

Moving on to slide 8 and an update on the network.

We continue our work to develop our Boston and Fort Lauderdale franchises.

We are committed to our plan to take these cities to 200 and 140 flights a day, respectively, over the next several years.

We plan to begin new service from Boston to Minneapolis in May, as we deepen relevance for our corporate customers.

As we move into the spring, we expect to accelerate our upgauging of Boston leisure destinations with our 200-seat A321s.

This aircraft is already proven to be a very effective tool to build margins and to keep low fares in the European leisure markets, and we anticipate using it similarly in Boston.

In Fort Lauderdale, RASM continues to outperform the system during the fourth quarter even with the weather disruptions in the early part of October.

We recently announced a new service from Fort Lauderdale to Santiago and the Dominican Republic and Grand Cayman, and we are balancing international and domestic growth by adding frequencies to existing profitable markets such as Raleigh-Durham, Richmond and Hartford.

Mint has played a pivotal part in achieving superior margins in our transcon markets.

In the past year, we added 15 Mint A321 aircrafts to support our strategy.

Existing Mint routes outperformed and new routes were in line with expectations during the fourth quarter.

We recently converted New York and Boston to both San Diego and Las Vegas from all-core demand.

And we plan to convert New York and Boston to Seattle in the next few months.

Today, Mint seat accounts for nearly 2% of our total ASMs.

Mint aircrafts are expected to contribute 90% of our total ASMs in the first quarter.

The Caribbean region responded extremely well to our capacity adjustments.

In Puerto Rico, our customer mix has changed significantly since October, but our margins in San Juan during the fourth quarter remained within a few points of system average.

The VFR market held up well and was supplemented by relief and reconstruction traffic.

As expected, much of the inbound leisure traffic did indeed shift to alternative destinations.

The Caribbean and Latin regions had the highest year-over-year RASM growth across our network during the fourth quarter.

Turning to Slide 9 and the revenue outlook.

We closed the fourth quarter with RASM above the top end of our already raised guidance range, mainly due to strong ancillary performance and lower cuts for compensation driven by solid operating performance at the end of the fourth quarter.

Through the quarter, we also saw demand strengthened in transcon and Latin markets.

Looking into the first quarter of 2018, we expect year-over-year RASM to range between 2.5% and 5.5%, as close-in demand strength continues across our network.

This quarter, the calendar is expected to have a net benefit to RASM of 2 points.

This is driven by Easter and Passover falling in the first quarter, equal to a benefit of 2.5 points, but offset by the calendar placement of early January, which moved 0.5 point back to the fourth quarter.

We expect the recovery in Puerto Rico to continue.

We do expect some headwinds in San Juan in the first quarter as we go through the winter break period, which traditionally has had a higher leisure traffic mix.

Finally, I'd like to update you on our progress in ancillary revenue.

2017 proved to be an outstanding year.

With upside from our co-brand card and Fare Options that helped grow our ancillary revenue per customer by approximately 8% during the year.

Since 2008, we've grown ancillary per customer at a compounded 5% rate to $27 in 2017.

Our in-flight revenue today include a solid foundation that comprise of Fare Options, our Even More product and the JetBlue Card.

Our portfolio of co-branded credit cards has more than doubled in size since we have relaunched with Barclays, and we know it still has a lot of upside potential.

We enjoy a high-value geography that supports upsell to high-value products in leisure markets.

For example, we generated $6 per customer in 2017 from our Even More Space product.

As Robin noted, in 2018, we're setting this foundation for the next leg of ancillary growth.

We've created a separate organizational structure for our JetBlue Travel Products group, which includes our JetBlue Vacations brand.

We anticipate announcing new leadership for the JetBlue Travel Products group in the near term.

We believe this structure will allow us to invest in a focused and disciplined manner to grow a capital-light, high-margin ancillary revenue stream.

We also expect to introduce a new booking flow on our website in order to better merchandise the travel products, as the share of leisure customers bookings through jetblue.com recently reached the highest level of the past 4 years.

On the normal ebb and flow of the ancillary business, we expect the 2018 ancillary per customer to grow slower than 2017 as our existing offering matures.

Although it is still too early to quantify the full potential of the JetBlue Travel Products revenue contribution, we believe we're laying the foundation for additional growth over the next few years.

Before turning it over to Steve, I'd like to thank our crew members for their hard work during 2017.

This was an operationally challenging year.

But I believe that our culture continues to be a secret sauce that allows us to rise to challenges and to provide our customers with the service they want and deserve.

Steve, over to you.

Thank you, Martin.

Good morning, everyone, and thank you for joining us.

I'll start on Slide 11 with some highlights from the fourth quarter.

EPS was $2.08 per diluted share.

This includes a $1.76 gain related to tax reform.

Excluding this gain, our EPS was $0.32.

Our results included $23 million in expenses related to our $1,000 bonus to crew members.

This bonus reduced our EPS by approximately $0.04 per share.

The fourth quarter was also affected by hurricanes Irma and Maria, which reduced EPS by $0.09.

Appendix A of the presentation shows the final hurricane impact for the quarter and for the full year.

Pretax margin was 9.7%, down 7 percentage points from the fourth quarter of last year.

However, excluding the impact of hurricanes and the crew member bonus, our pretax margin was 13.2%.

Finally, profit sharing accrued for the full year was $34 million.

In the fourth quarter, in 2017, we took actions to navigate a complex external environment, all aimed at protecting and enhancing our margins.

These actions include the capacity adjustments and redeployments following a challenging summer and to mitigate the impact of severe hurricanes.

At the same time, we are also laying the foundation for what we believe will be superior margins through revenue strategies discussed by Marty and the structural cost program.

Turning to tax reform.

In the fourth quarter, we recorded a $570 million noncash gain related to the revaluation of our deferred tax liability.

Looking to 2018, we anticipate that JetBlue's effective tax rate will be between 24% and 26%.

As you know, we're adopting new accounting standards on revenue recognition as of January 1, 2018.

The guidance we are providing today is under the old accounting standards.

However, we do not expect the adoption of the new standard to have a significant impact on our RASM guidance.

Appendix C of the earnings presentation shows the timeline of how we expect to transition to the new standard.

Moving to Slide 12 and unit costs.

Fourth quarter CASM Ex-Fuel increased 8.1% year-over-year, including a 2.1 point impact from the crew member bonus.

This quarter, our CASM Ex-Fuel growth was roughly at the midpoint of our range, excluding the crew member bonus, and is the fourth consecutive period in which we achieved our initial guidance.

For the first quarter of 2018, we expect CASM Ex-Fuel to range between 2% and 4%, driven by sales and marketing and other expenses.

Our guidance includes the cost related to the recent winter storm Grayson, which closed JFK for over 22 hours.

For 2018, we expect CASM Ex-Fuel to range between negative 1% to plus 1%, as cost guidance includes operational investments to mitigate ATC challenges that we expect to reoccur this summer.

We are proactively addressing potential disruptions through lower aircraft utilization and longer turn times at critical afternoon periods in the schedule.

Currently, higher oil prices are also shifting our balance towards lower aircraft utilization, which naturally adds pressure to CASM Ex-Fuel.

I'll return towards 2018 CASM in a moment, as we approach an important inflection point in the second half of 2018.

Our 2018 guidance, of course, does not include any potential outcome from the ongoing contract negotiation of our pilots.

We are including the pay increases for other crew members, including the 5% raise previously agreed for our in-flight team effective the 1st of January.

Before moving to the next slide, I want to mention the change to our CASM Ex-Fuel metric.

Starting with today's guidance, we will add together other nonairline expenses related to JetBlue Travel Products with the expenses related to JetBlue Tech Ventures, which were previously excluded from the CASM Ex-Fuel guidance.

This change is completely immaterial to our CASM Ex-Fuel growth in 2018, but we believe it provides an improved framework as we look to invest in capital-light and high-margin ancillary revenue streams.

We anticipate that this will be yet another long-term building block to achieve our superior margin goal.

We've included additional details in Appendix B of the earnings presentation.

Moving to Slide 13 and an update on our structural cost program.

We're now 1 year into the program and are pleased with our progress.

Today, we've achieved approximately $90 million in annual 2020 run rate savings, up from the $70 million we highlighted on our last earnings call.

We continue to expect cost savings between $250 million and $300 million by 2020.

Starting with tech ops, as discussed through the past year, a significant part of our progress in this pillar relates to ongoing RFPs.

Our work includes the RFP for the NEO engines and maintenance that is underway as well as the recently launched maintenance RFP for our V2500 engine fleet.

We're seeing a positive response from our business partners.

We have also invested in technology that allows our crew members to optimize heavy maintenance and inventory planning, making our team more efficient.

Turning to the corporate and airports pillars.

We've made great progress in improving our strategic sourcing process, and providing customers and crew members with better tools, which allow our crew members to be more productive as we grow.

Most of the savings to date in the corporate pillar are related to renegotiations with business partners.

So far, we have achieved approximately $20 million in savings in 2017, and we expect close to additional $20 million more in 2018.

We spent nearly $800 million with business partners, excluding tech ops, making these sourcing efforts critical to our success.

In the airports pillar, the ongoing work is related to improving productivity.

We have now deployed self-tagging technology in 12 lobbies.

This initiative is part of a broader effort to empower both our customers and crew members, and allow crew members to focus more on what they do best, providing outstanding hospitality.

We are also focused on standardizing our business partner management practices.

Our progress in this pillar will allow us to grow more efficiently, especially given the physical limits of our airport infrastructure.

Lastly on distribution, we have made great progress, particularly renegotiating distribution agreements with business partners such as online travel agents.

We are now focused on incorporating new functionalities in our customer service centers and self-service tools for our customers, both through our website and mobile app.

This not only supports our direct distribution strategy, but also lowers the cost of servicing customers after they have purchased their ticket.

As we execute our direct distribution strategy, it is critical that we invest in these digital tools and look for further opportunities with our business partners.

Turning to Slide 14.

We are approaching the important inflection point in our CASM Ex-Fuel growth trends in 2018.

Even though our trends have improved since late 2016 and early 2017, we expect a higher impact of the structural cost program, starting in the second half of this year.

We expect CASM Ex-Fuel in the 1.5% to 3.5% range in the first half.

By the second half, we expect that cost initiatives to have a higher impact on our CASM Ex-Fuel growth, and we expect CASM Ex-Fuel to decline in the range of negative 3.5% to negative 1.5%.

Part of this decline clearly relates to hurricanes and crew member bonus in 2017.

However, excluding these items, we expect underlying CASM Ex-Fuel growth to slow as maintenance sourcing and airport initiatives further bend down our unit cost trends.

While still too early for formal guidance, we expect that CASM Ex-Fuel trends to improve through 2018 and even further into 2019 and 2020, as the benefits of structural cost program ramp and our A320 cabin restyle program gains critical mass.

Based on the progress we are seeing, we remain confident that we can achieve a flat to 1% compounded annual growth rate of CASM Ex-Fuel from 2018 to 2020.

The base year is our 2017 results.

But to be clear, this excludes the cost impact of the tax reform bonus of 0.5 points.

Turning to fleet on Slide 15.

We closed 2017 with 243 aircraft, adding a total 16 during the year, including 1, 2018 delivery that we shifted a few weeks earlier into 2017.

We are pleased to announce that we have kicked off our Cabin Restyling program on our A320s.

with the first prototype going through modifications at the same time of the scheduled heavy maintenance check.

During the past quarter, we made significant progress in addressing certain quality issues of our business partners.

We believe this multiyear restyling program will allow us to increase capacity in a capital-efficient and customer-focused way.

As part of our comprehensive fleet review, we continue to explore options for our E190 fleet.

Our options range from maintain the current fleet of E190s to full replacement with an alternative aircraft type.

The recent changes in the aircraft OEM landscape, which has taken place during the course of our review, have presented new opportunities, and we are factoring these potential changes into our assessment.

We are focused intently on getting the best outcome for our crew members, customers and owners.

We continue to balance the opportunity for margin improvements with our capital commitments.

We have made great progress in evaluating how the A321LR could fit into our successful Boston and New York focus city strategies.

The bulk of the review is completed, and we will update the market when we have news to share.

As a reminder, our LR work does not impact our medium-term CapEx guide.

The LR option allows us to convert the existing A321neo orders, but the aircraft is not scheduled to be available until the end of 2019.

Turning to our balance sheet on Slide 16.

We are pleased that during 2017, we received 2 ratings upgrade, and we have one of the strongest balance sheets in the industry.

This provides us with the foundation to prudently invest to grow our business, while allowing us to take a balanced approach to capital allocation.

Our CapEx guidance for 2018 is between $900 million and $1.1 billion, composed of up to $900 million in aircraft and the remainder in nonaircraft spend.

We are very comfortable with our fleet plan through 2020.

We closed the year with an adjusted net debt-to-cap ratio of 28%, which reflects the progress we have achieved in deleveraging and the impact of the large benefit relating to the tax reform.

At the end of 2017, cash and investments were approximately 10% of trailing 12-month revenue.

We continue to deleverage our balance sheet, while repaying $194 million of debt during 2017.

Late last year, our board approved a new 2-year $750 million share repurchase authorization.

We intend to continue to repurchase shares opportunistically.

As a reminder, over the last year, we have returned 6% of our average mark-to-market capitalization to shareholders.

We also expect to continue to balance our capital allocation for the benefit of customers, crew members and owners.

I too want to thank our crew members for all their hard work as we navigated some exceptional events in 2017.

This past year, we demonstrated our ability to sustain solid margins and make progress in our commitments to all our stakeholders.

While addressing our unit cost growth by making investments in our brand operational network, we continue to lay the foundation that will, we believe, achieve superior margins.

Looking into 2018, we're excited to advance our work to create long-term shareholder value.

We will now take your questions.

Thanks, everyone.

Stephanie, we're now ready for the question-and-answer session with the analysts.

Please go ahead with the instructions.

(Operator Instructions) Our first question comes from Helane Becker.

As I look at your CapEx budget for the next couple of years, it's something on the order of 14% of revenue, which seems like an aggressive number, but the aircraft portion obviously looks like it's about 3/4.

Can you just talk about the plan for the nonaircraft portion?

Thanks, Helane, it's Steve here.

I think we've taken a very balanced approach to our capital allocation in order to continue to drive towards superior margins.

I think what I would say is that when you look at the CapEx guide through '18 and beyond, we've clearly shown the aircraft delivery schedule.

The other thing that's in there is obviously restyling.

So -- and in 2018, it's a fair bit of investment in the restyling program, which we're taking eventually in order undertake that.

With regard to the nonaircraft CapEx that we've guided today, it's really critical that we continue to invest, particularly in technology, to make sure that our crew members and our customers have the right tools so that we continue to drive productivity and efficiency and great customer service in our operations, and we've started to do that in earnest at the start of 2018.

So when you look through the lens of the nonaircraft CapEx, you should think heavily about investments in technology, because we see that as a very important path, not only to invest in our revenue initiatives and everything going forward, but really to drive and support the structural cost program to ultimately drive those margins.

Okay.

The other question I have is with respect to what happened during whatever that storm was, Grayson, I guess, at JFK specifically.

Have you talked to the Port Authority about ways to improve the way they allocate capacity at the airport when there are irregular operations and whether or not there can be aircraft moved between terminals in an effort to alleviate some of the wait on the runway and some of the other issues that cropped up during that storm that caused the airport to shut down for such a long period of time?

Helane, good morning.

It's Robin.

I'll take that.

We have a very good partnership with the Port Authority, and I know they're very keen to kind of reflect on what worked and opportunities there for improvement and they have a review.

I think the bigger challenge for the airlines during this event was that JFK was effectively closed for 22 hours from sort of about 10 p.m.

on -- sorry, from about 10 a.m.

on day 1 to about 8 p.m.

-- 8:00 a.m.

on the day 2. And then there was, as you know, a big influx of an international airlines getting effectively a double operation.

And there was actually a procedure the port has and did deploy to allow airplanes to use other terminals, but it's very -- it's not easy because all the terminals are full.

And I think the biggest challenge that they had over T4 was the baggage system and then the need to evacuate the terminal.

So it was a very -- I'm trying to say it's a very complex issue, and we'll certainly collaborate and work closely with the port on the lessons learned.

Your next question is from Duane Pfennigwerth.

Just with respect to the cost guidance, and I appreciate the commentary on the second half.

But I wonder -- I know you're working on the number of initiatives, maybe some of which haven't come home to roost yet.

So is there a chance that as we progress through the year the -- some of the RFPs, et cetera, actually give you some upside relative to that guidance?

Good morning, Duane.

Steve here.

I'll pick that up.

We're taking a very rigorous and disciplined approach to how we're going through this process.

And as I said at the start, I'm really delighted with the collaboration we're having across the whole of JetBlue, and the excellent results we've seen so far with the structural cost program that you can all see from our exhibit that we've shown this morning, particularly impacting the second half of the year.

We aren't changing our guide, Duane, from the $250 million to $300 million.

We put that out there at the end of 2016 at the Investor Day.

We're completely on track.

We're delighted with how things are going.

We're taking a very measured approach to that, and we'll continue to do that as we go forward.

We don't guide any further out.

I just want to really make sure that the analyst community get a good sense of our absolute confidence around the delivery of this program.

But at this stage, we're not going to be guiding anything different as we -- of what we already laid out.

Okay.

And then maybe just an update on the tenor of a seat densification when that really starts to contribute to the cost structure.

I'll pick that one up again, Duane.

I'm pleased to say, as I mentioned in my opening comments, that the first A320 has gone in for modification.

And the other thing we've done is we've tied that to a heavy check.

We've talked about long-term planning tools and taking a very efficient approach to this, so that we only touch the aircraft once.

So one of the aircraft's in the shop at the moment.

There is some certification work that we're going through.

We want to make sure that we have the quality of the product right.

And then once we've done that, we will then progress with the rest of the program.

We talked about the fact that each aircraft takes around 30 days, and we also, historically, talked about the fact the overall program will take up to about 36 months.

But in our focus around driving the restyling program, doing it in a very -- both capital- and OpEx-efficient way by touching the aircraft once we have rescheduling, we continue to get into the diligence of the planning, and we'll be guided by the most accretive use of the timing, and we'll continue to update you as the program progresses.

Your next question comes from Michael Linenberg.

Two questions here.

Robin, just on the -- or actually, Marty.

Sorry.

I'm not trying to diss you, Robin.

I just realized it's a Marty question.

No, I get it.

You don't think I know -- it's all good with Marty.

It's -- just a 2.5 points of the unit revenue benefit that you get in the first quarter because of the shift in Easter.

Look, the fact is there is sort of end of Easter does fall in the June quarter.

So what -- how should we think about the June quarter, the potential offset?

I suspect it's not a negative 2.5 in the June quarter, maybe it would be a little bit less than that, because you do get some Easter benefit in the June quarter.

How should we think about that?

Mike, thanks for the question.

No, the 2.5 is a simple shift between second and first quarter as the outbound for Easter moves into the quarter, and it is more or less linear between the 2 of them.

So that's actually -- that's in effect -- look at that as a net good guy, bad guy between the 2 quarters.

Obviously.

So you're saying that in the June quarter, it would be a negative 2.5 hit, the way I think about it?

Yes.

So it's generally how it works.

Okay.

So it's equal.

Okay...

I mean, if you go back historically, we've had really big Easter shifts.

We've had shifts in the 6% and 7% range before, so I think it's a good indicator that the fact this sort of straddled 2 quarters.

That's okay.

That's actually a really good point.

And then on -- just on my second question, and I don't know this is a question for you, Robin and/or Steve, when you look at your operational performance over the last year, obviously, there were things that were specific to JetBlue, just moving aside some of the hurricane stuff and the fact that a sizable part of your network -- you maybe were disproportionally impacted by some of that.

But when we think about the runway work that was going on in New York and also, Boston, obviously, had an impact that past summer.

But structurally, when you look at your network today and the markets that you're in, as we look out over the next year or 2, can you get back up to the type of operational performance that JetBlue has historically been known for?

Or are you forever going to be sort of relegated at best in the middle of the pack on sort of one hand?

And on the other hand, how much do you actually have to spend?

I mean, is that in your unit cost guidance?

Or are you going to have to start to allocate more resources to get JetBlue's operational performance to the level that we had grown used to just a few years back?

Michael, I'll take that.

It's Robin.

That's a really good question, and I'll try and give you a brief answer just out of respect for all of the questions, but happy to follow you off -- follow up with you off-line, and our operational performance is very important to us.

If you actually look at how we're performing on blue sky days, days where we do not have weather and do not have sort of the -- some of the ATC challenges, we've seen a very nice improvement.

I mean, our performance in November, for example, this year -- sorry, 2017, which was a relatively calm month, was about our best performance for about 6 years.

So we definitely -- we've made some nice progress on those blue sky days and we have more that we're rolling out this year.

In a way we were very challenged last year was the combination of, as you know, you mentioned them, 2 runway closures at the 2 of the largest airports.

If you look at our network, our largest 2 focus cities are New York and Boston.

And so those tend to also be 2 airports where we see a lot of weather events.

We also suffered from the ATC staffing challenges in N90, which is the New York TRACON, all of those came together.

The good news as we think about 2018 is that we don't have those 2 runways closed.

They are open.

We are working with the FAA on the ATC staffing.

We're still concerned about that, to be honest, but we're working that issue through.

And we have made some more investments in our schedule and buffer into 2018 to try and provide us some more -- some better performance around some of those peak periods where we traditionally see these challenges.

And I'm actually -- one of the reasons I'm very encouraged with the cost guide we've provided for 2018 is that we've made those investments and managed to deliver the sort of minus 1% to plus 1% that Steve outlined.

So happy to -- a lot more we can say, but very pleased with the efforts.

It is -- and when we look at our relative performance in New York and Boston, we have -- we stack up against the other airlines and the people buying travel in the Northeast, providing you're competitive and relative to the other carriers, then I think you have a strong story, but still very committed to maintain those improvements in 2018.

Not having the runway closure in JFK and Boston will be a big help.

Your next question is from Jamie Baker.

At JPMorgan.

Question on the pilots.

I mean, we have a new contract at Alaska, albeit an arbitrated one.

We have an agreement in principle with Spirit.

It kind of feels like we know where the market is for aviator wages at least for the more growth-oriented airlines, like JetBlue, obviously.

So would I be mistaken then to assume that you're in the final stretch and we should be modeling for a new contract this year?

Jamie, good morning.

I'll take that.

Look I'm not -- I won't -- we're not going to sort of negotiate in public or really give much indication where we are, just to say that.

Talks continue under mediation.

I think the both sides are working through the process.

We're working with very good faith.

In fact, there were discussions going on this week.

And I'm very -- we all are -- we are very proud of the JetBlue pilot air community.

But the difference between where we are and the other airlines is that this is our first contract.

This is something that we are building from scratch, and so it's not just a question of sort of amending a contract and looking at pay rates, especially every single page has to be [read].

It just takes time, but we're working through that in good faith.

Okay, that makes sense.

And then a follow-up for Steve.

You referred to E190 fix and slowing that analysis, given everything that's going on in that sized aircraft segment.

My question actually is on the 321LR.

Given some of the commentary in recent days on middle of the market, some of the chatter coming out of Dublin this week, I mean, should we assume that your transatlantic analysis, which you conceded exists, that might also get slowed until there is more visibility on aircraft in this category?

Or are you still proceeding at the same pace on that potential decision?

Yes, thank you, Jamie, and good morning.

I'll just say quickly on the E190s just to -- so we are all aware -- the evolving OEM landscape, we have sort of, obviously, taken that into account as we've gone through.

The team has done a huge amount of work, really terrific progress as we made during 2017 and as we migrate through there, we will update accordingly.

Obviously, there's no significant change in the OEM landscape with regards to this LR.

The lens that we're looking through that is of Boston and New York focus city strategy.

We've had phenomenal success with Mint.

We've had phenomenal success in growing those focus cities.

And we're looking through any LR decision through the lens of margin.

And this aircraft would have to be the next use of the A321 order book.

I'm weighing that up against the likes of the transcon [mentor], as Marty alluded to earlier, that's a 200-seat opportunity that we have.

So there's no slowing down on any review.

Again, a significant amount of work.

We do believe that with what we managed to do from a transcon perspective in terms of offering fantastic products, fantastic service and great fares for customers, and that's been a really terrific success for us, we'll look through this lens.

And when we have something to update, we'll update you when appropriate.

Your next question is from Hunter Keay.

You're spending a lot on IT as a lot of airlines are, particularly JetBlue, I think.

Steve, do you know roughly how much of your D&A line relates to capitalized IT expense?

And is that depreciation part of the nonairline expense you're going to exclude from CASM Ex going forward?

Good morning, Hunter.

In terms of those detailed questions about level of (inaudible), so Dave and the team's to pick up with you afterwards if we're going through that.

I just want to ensure that we're aware.

With regards to the excluding -- your specific question about excluding that from CASM Ex, no, that is not the case.

With regards to the JetBlue Travel Products business, the de minimis amount of CASM growth that we're seeing on that side that we've pulled out, adds for me, huge transparency, and sets the right guidance framework for us to make those prudent and right capital-light investments.

We've outlined in the Appendix B of the presentation that we circulated this morning that you'll need to update your model.

But as I said, it's very de minimis to the CASM growth guide.

Okay.

Yes, certainly, in espouse with that, it's a -- just given the context of the long-term CASM guide, I wasn't sure if this is a really needle-moving issue, but I can follow up with Dave afterwards.

Yes, not at all.

Hunter, it's not needle-moving issue.

And Hunter, if I can just kind of add to that.

It's Robin.

Good morning.

I think in terms of when we think about IT investments, and we see the benefits that we see from rolling out better self-service tools.

I mean, we rolled out a number of enhancements recently.

We have more to come.

All of this will be completely supportive of our structural cost program.

It will take transactions out of airports.

It will mean less calls into customer support.

We've already seen some very good results.

We're very encouraged with the channel shift that we're seeing on to jetblue.com, and so all of those things contribute to that $250 million to $300 million goal.

And the investment in that is included in our CASM guidance.

Okay, yes.

Another one, not sure if this is a Marty question or not, but if I look at Slide 13, I can see that distribution pie chart is almost filled up.

So maybe that's the answer in itself.

But how did that move away from some of those smaller OTAs ago?

Were you able to redirect those bookings to other OTAs or to direct channels?

And if you were successful on that, is that -- was that an experiment to try something more ambitious with distribution?

Or was that kind of just a one-off thing and we're almost done with it?

Hunter, thanks for the question.

First of all, the fact that, that pie is almost filled should mean nothing as far as our ambitions.

I fully expect that we'll continue to progress to try to get even more cost savings out of the distribution line.

And yes, I'm very, very, very happy with how the first move went with removing some of the low-value OTAs.

We went through the assessment of each individual distribution partner.

And remind you, that our #1 goal is a direct relationship with customers.

Those who were not providing value really don't fit very well into our strategy.

So I don't want to use the word experiment because that makes it seem like there wasn't a strategy behind it.

I would call it a first step, though.

Your next question is from Brandon Oglenski.

Robin, I guess, I just want to come back to this focus on improving long-term profitability and the relative margins for JetBlue.

It's no surprise that fuel prices are up and I think even up again today.

And yet, we haven't seen JetBlue's capacity change.

Obviously, capacity's been the focus on other airline calls here as the sectors trades off for 2 days in a row.

So how can you give your investor base some confidence that -- we've heard it on other calls, I'm sure you guys are going to say the same thing.

At this fuel level, we need to see higher fares.

What can be done to get higher fares as opposed to just asking people to pay you more?

Well, Brandon.

I'll take that.

Appreciate the question.

Obviously, I'm not going to comment on the -- comment around fares.

That's a decision every airline have to make its own decisions for.

But in terms of higher fuel, I think we've -- if you look at our capacity growth of couple of years, it has come down.

As you look at that number for next year, remember, we had quite a bit of capacity that we didn't fly last year because of the hurricane events.

And I think, as we've always shown, we are flexible and we will adapt.

And so our focus is on driving those margins, having the right amount of capacity in the market to support those margins.

And if we see sort of higher cost of providing that capacity, then we will make adjustments.

But -- and I think we've demonstrated that we've done that.

We did that in 2017 as we moved into the year, not for fuel, because we had -- we saw some revenue challenges, and there, you can always count on JetBlue to look at things in a very prudent margin-driven way.

Okay, I appreciate that feedback.

And can -- sorry, because there's been a lot of conference calls this morning.

But did you guys talk about the recovery in San Juan specifically and some of the other Caribbean destinations that were impacted last year?

And maybe how the efforts to redistribute that capacity have been playing out at JetBlue?

Brandon, it's Marty.

Thank you for the question.

We did talk a little bit about it.

I can reiterate a little bit of what's in script, wasn't in script, and maybe give you some more color.

We actually had a very strong recovery in San Juan.

We were very quick to remove capacity and redeploy it to other destinations, Dominican Republic, Jamaica, et cetera.

And overall, not only we're seeing a very, very nice recovery in San Juan based on our current capacity level, we've also seen outstanding RASM performance from the rest of the region.

In fact, we specifically called out the Latin region overall as being a standout as far as our current RASM performance.

So I think if you go back a quarter when hurricane was fresh and there was a lot of the unknown.

If you go back to the call, we basically said, we've been through hurricanes before.

We know what to do in these situations.

Let's be confident, and I think it's very much played out the results we've seen.

We're actually very bullish in the Caribbean.

We have been for many, many years, and we will be for many years going forward.

Your next question is from Kevin Crissey.

I apologize for it's going to be a little bit long introduction to the question, but I think it sets the background.

So on the cost guide, you have 0 to 1% CAGR, which including the pilots.

If I look -- and that was set a while ago, if I look at that, it seems -- I know there's concern from investors that, that's an aggressive goal.

I mean -- and when you set that, since that time, you've had pilot pay move higher, probably then you may have expected.

Your capacity being lower, including a delay of the 320 additional seats.

You have this more operational investment here, given the challenges in 2017.

So the question comes down to is, one that, that your cost lines that you have opportunity is the RFP for maintenance.

You have some challenges probably, I assume, given the age of your fleet with some life-limited parts.

The crux of the question is, I want to make sure that one of the solutions to fixing maintenance and life-limited parts cost inflation might be an aircraft order, which allows you to push some of those cost inflation down the road into the new planes.

I want to just confirm that, that's not part of a 0 to 1% process to get to that kind of CAGR.

Good morning, Kevin.

It's Steve here.

I'll take that one.

You're correct, it's not.

We are really, really happy with the progress that we've made, and we remain very confident about the 0 to 1% CAGR.

If you think about the new structure we announced at the back end of '16, and plans will continue to evolve and things will continue to move.

The traction that we've made on the structural cost program has been terrific.

We obviously took a very short delay on the A320 restyling.

But as I mentioned this morning, we have an aircraft in the shop, and we're going through that side of things and we will look at the timing of that.

So we laid out a plan.

We were pretty specific about the plan, and we continue to execute against it.

And I'm particularly excited with the RFPs that we're looking out with our existing fleet.

I'm particularly excited about the contribution that can bring for us to drive towards superior margins.

And we've been incredibly disciplined and diligent about making sure that we extract as much value out of that so that we will hit the 0 to 1% CAGR.

And this for Marty or -- and/or Dave Clark, I don't like if he is in the room as well.

But with the change of frequent flyer accounting, does it have any revenue management implication as to the way you might release inventory or change any strategies at all?

Kevin, I'll take that one.

I think the simple answer is no.

If you look at the TrueBlue program, it's somewhat unique when you compare it to the other legacy -- the legacy airline programs in that it's a points -- it's a revenue-based earning system and a revenue-based redemption system.

So it will have no impact whatsoever with respect to the availability of our award seats.

We make every single seat available for awards just at a sliding scale prices, and that pricing structure is not expected to change.

Your next question is from Savi Syth.

I wonder if I can kind of turn over to Mint a little bit.

Just kind of curious, how many Mint aircrafts you're expecting here in 2018?

And then more so, as we think about the kind of the timing kind of the new Mint markets that you opened in last year, how long will it take to mature?

And as they mature, should we expect them to kind of reach the same level of kind of operating margin level as you're seeing in the kind of the New York and Boston to L.A., San Francisco routes, which seem to be kind of well above the system?

Savi, thanks for the question.

First issue is, for 2018, we were originally planning to take 3 airplanes this year.

We took one of them actually at the very end of 2017, so there were 2 Mint airplanes coming in 2017 -- excuse me, 2018, and that's to complete the conversion of New York and Boston to Seattle, as we mentioned in the script.

After that, the next several airplanes will be the 200-seat high-density A321s.

And frankly, I think it goes back to a point that we've mentioned several times, the A321 is an extremely successful airplane for JetBlue, both in the Mint configuration and in high-density configuration.

We absolutely have increased opportunities for the high-density A321.

We talked how it specifically getting it into Boston leisure markets, where we think it's a great tool to keep our fares low and continue to increase margins.

With respect to the future runway for Mint, we haven't announced anything for some of the later airplanes in the year, and I'm not really ready to announce that now, but I'll say, every single airplane we go through and try to make that distinction between whether we want a Mint plane or high density, and we go back and forth.

With respect to maturing of markets, I think if you look at the sort of the progress we've made in growing Mint and go back over the last several years, as we've talked about the evolution of Mint, I don't think we ever would have communicated Mint to be as big as it is right now.

And that's specifically due to the success we've seen in the market place.

We're extremely happy with some of numbers we've seen on the new routes.

With respect to ramping, we continue to see RASM improvements on the core routes of New York and Boston to L.A. and San Fran, but also very happy with the ramping we're seeing on some of the new routes, especially markets like Las Vegas, San Diego, where I think there was a lot of -- or should we say, there was some skepticism as to whether we could get enough premium demand in those markets.

And I think if you look at the value proposition of Mint, which is the best premium product in North America at a very fair price, I think that customers have responded to that everywhere we've put it.

That's helpful.

And can you talk a little bit about competitive capacity in your kind of focus markets?

It seems like maybe some trends are going well and some maybe going in the other direction.

But just high level, what you're seeing?

So competitive capacity, we're not really seeing anything significant in competitive capacity as far as the change in trend.

We tend to float around 5% competitive capacity growth in our focus cities, and that's more or less what we're seeing right now.

It ebbs and flows by city.

I think if you look at our -- the network strategy we communicated over the last 7 or 8 years, we've been very, very consistent as far as how we want to develop our network.

We have 6 focus cities.

The majority of the growth is going to 3 of them.

It's frequency and gauge in Boston and Fort Lauderdale and it's gauged in New York through the slot restrictions.

And we are steady as she goes on that course.

We're very happy the results we're getting.

We obviously monitor competitive capacity very, very closely, but we're not really seeing anything in that space that's concerning us at all.

Your final question comes from Joseph DeNardi.

Robin, just on the decision to set up the organizational structure of separately for the travel business and to ensure that it's not under invested in.

A number of airlines outside of the U.S. have applied that same logic to the loyalty program.

So can you just talk about why that's the right decision to make for this travel business?

And why it's not the right decision for the loyalty program?

Thanks.

I appreciate the question.

I'll maybe take the travel products and I'll get Marty to answer the loyalty piece because I know it's something he thinks about a lot.

Look, I think that we had great success with our ancillary revenue growth.

But I'm the first to admit that when I think about the power of our brand, that there is more opportunity.

And so by creating this as sort of a separate entity to focus on that, I really do believe it can be another building block in terms of -- as we continue to drive our revenue initiative.

And it's not lost to us in terms of how other airlines have started to think about loyalty and customer data and things like that.

So Marty, I'll slide it over to you maybe on that piece.

Sure, thanks, Robin.

So Joe, let me start by saying, one of this comes from an assumption upfront on what is core and noncore to the airline.

We think there are a lot of opportunities to leverage our current customer relationships through travel products with some more dedicated resources, which we're very excited about.

We have resources dedicated to loyalty.

And I think if you look at our ancillary performance in 2017, it's a good example as far as how we've been able to continue to drive the incremental contribution from loyalty.

But at the same time, I think we also look at that customer relationship and the customer data as being really core to JetBlue.

We do not look at customers like a wallet to be extracted from.

I mean, this is this customer relationship, it's really, really important to us.

And I would never say never about changing something structurally with loyalty, but it's definitely something that we think that, that core relationship is central to what JetBlue is about.

So it's definitely not in the radar right now.

Yes, that's fair.

And Marty, just one last one.

You said $27 in ancillary per pass in '17.

You guys do about $10 per passenger, I think, in bag and change fee revenue, just based on what you reported to the DOT.

You said another $6 from the Even More product.

I mean, are there other buckets in their other than the card that we should think about or is the remainder of that per passenger primarily the card revenue?

Well, Joe, we'll take it off-line and to try to go through it in detail.

I will say that we look at every individual element of that ancillary line as an opportunity to provide better service to our customers, better products to our customers and also, increasing margins.

So I think travel products is one example, but there are many more.

And we'll follow up after.

And that concludes our fourth quarter 2017 conference call.

Thanks for joining us.

Have a great day.

Again, that does conclude today's conference call.

We thank you for your participation and you may now disconnect.